News & analysis

JPY jump sends warning shot to markets for 2019

Jan 03, 2019

GBP

Sterling has experienced one of the worst starts to year in years yesterday with losses across the board, which apart from paring against the dollar, are worsening against other currencies this morning. A pretty solid beat on the Manufacturing Purchasing Manager Index with a score of 54.2 was to no avail for GBP, as Brexit deadlines drawing closer appear to dominate sentiment. The meaningful vote in the week of the 14th of January approaches apace and we do not appear even an inch closer to getting a Brexit deal before the March 29st deadline. This makes two sterling negative options more likely, as we may either see article 50 being resubmitted, extending the Brexit uncertainty, or we might even see no deal eventually. The Construction PMI today at 9:30 GMT may provide the tiniest sliver of solace.

EUR

The euro started the new year with a hangover and incurred heavy inroads from USD, JPY and CAD yesterday, although the single currency seems to be on a way stronger footing this morning. The Final Manufacturing PMI came in at expectations at 51.4 for December, however, since this is not far removed from the 50.0 neutral level, the Eurozone economy may be growing, albeit at a snail’s pace for this sector. Today sees M3 Money Supply at 9:00 GMT as the most important data release.

USD

The dollar benefitted from safe have flows yesterday after 2019 has so far mostly announced itself as a potential bringer of a global economic slowdown. Worsened outlooks from Chinese manufacturers that turn negative for the first time in years are the likely origin of such sentiments. Meanwhile, the US Congress remains stuck in negotiations to end the partial government shutdown, as President Donald Trump still hasn’t reached an agreement for the funds needed for the Mexican border wall. Although the market impact remains muted for now, the uncertainty that this discussion is bringing to the political situation is not playing in favor of the overall sentiment and may start to weigh on the dollar at some point. Conversations on this matter are planned to continue tomorrow, while the December employment change figure should be released today at 13:15 GMT, with the ISM Manufacturing PMI at 15:00.

CAD

Conform recent tradition oil markets saw wild swings again yesterday, with WTI crude prices rising as much as 7%, which took the loonie by the hand and led it to higher grounds. Overnight prices slumped around 4% again, which then washed away some of the gains of the loonie, although it still stands markedly stronger than yesterday morning. The December Manufacturing PMI coming at a lower level than the previous reading at 53.6 then also did a poor job in supporting the currency in yesterday´s trading session.

FX Elsewhere

JPY went on a sudden rampage yesterday after concerns about China growth kicked off a flash jump for the yen. A weak reading on China’s manufacturing, and more directly, Apple CEO Tim Cook expressing his surprise for the magnitude of the slowdown in the Greater China region, were the main suspects of pushing the first domino. The moves were then exacerbated by thin liquidity on a Japanese bank holiday, which had the yen jump almost 8 percent against the Australian dollar, to a level not seen since 2009, while the Turkish lira suffered a 10 percent loss. The yen was more merciful against EUR and USD, which “only” had to stomach losses of around 4% for a couple of minutes before the dead cat move bounced. Merely brushing this move off as algorithms going haywire seems too simplistic, as the yen appears to be holding on to its gains this morning with seeming ease. After being the best G10 performer in 2018 the yen is leading the currency board again so far in 2019, indicating that the cloud of risk off sentiment that hung over markets last year still looms threateningly over FX markets.